Business genius and hedonist, Charles Schwab entered the steel industry as an unskilled laborer and within twenty years advanced to the presidency of Carnegie Steel. He later became the first president of U.S. Steel and then founder of Bethlehem Steel. His was one of the most spectacular and curious success stories in an era of great industrial giants.
How did Schwab progress from day laborer to titan of industry? Why did Andrew Carnegie and J.P. Morgan select him to manage their multmillion-dollar enterprises? And how did he forfeit their confidence and lose the preseidency of U.S. Steel? Drawing upon previously undiscovered sources, Robert Hessen answers these questions in the first biography of Schwab.
Front MatterFront Matter (pp. i-x) https://doi.org/10.2307/j.ctt6wrdvd.1
Table of ContentsTable of Contents (pp. xi-xii) https://doi.org/10.2307/j.ctt6wrdvd.2
ProloguePrologue (pp. xiii-2) https://doi.org/10.2307/j.ctt6wrdvd.3
Charles Schwab was one of a generation of industrial giants, men who helped to transform America’s potential wealth into an actuality. Like his contemporaries—Andrew Carnegie, John D. Rockefeller, James J. Hill, Gustavus Swift, and numerous others—he learned early in life that a fortune awaited any man who could excel in business, and that ability was far more important than family background, academic credentials, or seniority. And like them, he combined intelligence with daring and independent judgment. They were men with the courage and determination to persevere when navigating in uncharted waters—men who, in Joseph Schumpeter’s famous phrase,...
1 An Unlikely Background1 An Unlikely Background (pp. 3-12) https://doi.org/10.2307/j.ctt6wrdvd.4
Late in 1932, Charles M. Schwab tried to explain why he had been so extraordinarily successful in the world of business. “As I sit and look back over those fifty years, I cannot for the life of me understand the whole thing. All I can do is wonder how it all happened. Here I am, a not over-good business man, a second-rate engineer. I can make poor mechanical drawings. I play the piano after a fashion. In fact, I am one of those proverbial Jack-of-all-trades who are usually failures. Why I am not, I can’t tell you.” ¹
2 A New World of Steel2 A New World of Steel (pp. 13-30) https://doi.org/10.2307/j.ctt6wrdvd.5
When Charles Schwab reached Braddock he was thrust into an unfamiliar and unwholesome environment. Loretto was a sleeply hamlet whose 300 inhabitants shared a common life-style and religion; Braddock was a growing industrial town whose population of nearly 9000 was torn by tension and bitter resentments.
The “native stock” of Braddock, descendants of settlers from England, Ireland, and Scotland, feared the growing influx of “foreign” laborers, most of whom were Italians, Slavs, and Hungarians. These men, unskilled workers at the Edgar Thomson Steel Works, were regarded as vulgar, ignorant, unclean, ruthless, and degenerate “foreigners.” Many of them had come to...
3 Success and Scandal3 Success and Scandal (pp. 31-58) https://doi.org/10.2307/j.ctt6wrdvd.6
Schwab’s view of other men was an extrapolation of his own attitudes. He assumed that working men had the same desires and ambitions he had, and that they could be spurred to greater efforts by the same inducements and rewards which appealed to him. He was keenly aware that he would do his best work if he knew that he would be well paid for it, so, as superintendent of Braddock, he offered his workers rewards for maximum effort. Throughout his life he gave his subordinates positive incentives, bonuses and promotions, rather than threatening to fine or fire them if...
4 Promotion to the Presidency4 Promotion to the Presidency (pp. 59-80) https://doi.org/10.2307/j.ctt6wrdvd.7
Schwab’s position at Homestead was secure despite the armor scandal; Carnegie refused to sacrifice his ablest young partner on the altar of public opinion. He fully shared Schwab’s low estimate of government inspectors; he, too, viewed them as martinets and meddlers. Carnegie believed that he, Frick, and Schwab had been victims of a vendetta instigated by members of a defeated union, that they had been persecuted by over-zealous government officials, and that they had been condemned by journalists and Congressmen who, for a variety of motives, sought to vilify him and his company.
Just as he had remained loyal to...
5 Troubleshooter and Conciliator5 Troubleshooter and Conciliator (pp. 81-110) https://doi.org/10.2307/j.ctt6wrdvd.8
Carnegie and Schwab had the same basic objectives: to run the works at full capacity, with costs as low and profits as high as possible. But on occasion they differed about how those objectives were to be achieved. Whereas Carnegie was a fierce competitor, determined to maintain his industrial supremacy, Schwab tended to be more conciliatory, preferring compromise and “cooperation” to achieve the same ends.
One area of disagreement between them concerned the company’s pricing policy during periods of prosperity. Carnegie believed it would be a mistake to raise prices substantially during periods when rising demand enabled the nation’s steel...
6 Out from Carnegie’s Shadow6 Out from Carnegie’s Shadow (pp. 111-122) https://doi.org/10.2307/j.ctt6wrdvd.9
The depression ended in 1897, and between 1898 and 1902 a wave of mergers and consolidations swept over the American economy.¹ In 1898 the Moore Brothers of Chicago consolidated a number of small steel companies into four larger firms and the banking house of J. P. Morgan organized three similar mergers of steel companies. A year later John W. Gates followed the trend by forming the American Steel and Wire Company, a consolidation which dominated barbed wire production.
Most of the new mergers in the steel industry involved firms which fabricated steel into finished products—tubes, hoops, wires, structural beams....
7 U.S. Steel: Schwab’s Rise and Fall7 U.S. Steel: Schwab’s Rise and Fall (pp. 123-144) https://doi.org/10.2307/j.ctt6wrdvd.10
On April 16, 1901, Schwab resigned from the presidency of the Carnegie Company. He had been named president of the United States Steel Corporation. At thirty-nine, he headed the first billion-dollar enterprise, a corporation which controlled nearly 50 per cent of America’s steel-making capacity.
U.S. Steel was not an operating company, but a holding company. It controlled 213 steel mills and transportation companies, including 78 blast furnaces; 41 iron ore mines and a fleet of 112 ore barges; as well as 57,000 acres of coal and coke properties in the Connellsville region of Pennsylvania, with nearly 1000 miles of railroad...
8 The U.S. Shipbuilding Company Scandal8 The U.S. Shipbuilding Company Scandal (pp. 145-162) https://doi.org/10.2307/j.ctt6wrdvd.11
Among the mergers in which Schwab was involved at the turn of the century, U.S. Steel, International Nickel, and American Steel Foundries proved successful and lasting. However, one merger was not. That was the United States Shipbuilding Company, a 1902 merger of seven shipyards on the Atlantic and Pacific coasts. By 1903 the company was verging on bankruptcy and Schwab was being accused of having deliberately engineered its collapse in order to obtain its assets for himself.
Any estimate of Schwab’s guilt or innocence depends on which one of two underlying premises one holds. In their analysis of the collapse...
9 The Transformation of Bethlehem Steel9 The Transformation of Bethlehem Steel (pp. 163-188) https://doi.org/10.2307/j.ctt6wrdvd.12
Bethlehem Steel had been a small, specialty producer; within a decade after Schwab took control he had made it into the second largest and most diversified steel company in America. To magnify his own achievement, however, he repeatedly claimed that, before Bethlehem had come into his hands, it had been run-down and verging on bankruptcy. Across the years, writers who interviewed Schwab drew the conclusion that Bethlehem had been a “down-at-the-heels, decrepit, bankrupt, unimportant concern” before Schwab took charge, that it had consisted of “a few half-deserted buildings [which] were waiting to be stripped of machinery,” and that it had...
10 Tariff and Labor Controversies10 Tariff and Labor Controversies (pp. 189-210) https://doi.org/10.2307/j.ctt6wrdvd.13
Schwab was confident that Bethlehem Steel could match any domestic competitor, yet he claimed that the company could not withstand unrestricted competition from foreign steelmakers. He believed that Bethlehem’s survival was intimately tied to high protective tariffs on steel—that in the absence of tariffs, Bethlehem could be undersold in the eastern United States by European rail producers. U.S. Steel was not as threatened: it sold its rails primarily in the area west of Pittsburgh and thus was not vulnerable to foreign steel. Its chief protection was the high cost of inland railroad freighting; sending steel products 100 miles by...
11 Wartime Challenges11 Wartime Challenges (pp. 211-234) https://doi.org/10.2307/j.ctt6wrdvd.14
On October 20, 1914, the British Admiralty sent a secret message to Schwab, who was then in New York. They wanted him to come to London at once. Schwab guessed that the British were planning to give Bethlehem orders for shells and shrapnel. He immediately telephoned Archibald Johnston, Bethlehem’s vice-president in charge of foreign sales and its top ordnance expert, and asked him to come to New York at once, but not to tell anyone where he was going.¹
That same night, at 1:00, the two men set sail for England aboard S. S.Olympic. The huge luxury liner had...
12 Dollar-a-Year Man12 Dollar-a-Year Man (pp. 235-244) https://doi.org/10.2307/j.ctt6wrdvd.15
When America entered the war in April 1917, she had few troop and cargo ships, and by July of that year the shortage was severe. Industry was straining its productive capcities to meet military requirements, but the shipbuilders were not keeping pace with the nation’s mounting needs. And in the meantime, deliveries for Europe were delayed on the docks.
The United States Shipping Board exercised general authority over ship procurement; its function, in consultation with the War and Navy Departments, was to determine the quantity, type, and tonnage of troop and cargo ships needed for the war effort. But the...
13 Semi-retirement13 Semi-retirement (pp. 245-258) https://doi.org/10.2307/j.ctt6wrdvd.16
If Schwab had died late in 1918 just after serving as Director-General of the Fleet Corporation, he probably would have been given an official state funeral. At minimum, he would have been memorialized by Congress for his service to the nation. Woodrow Wilson and Josephus Daniels, as well as politicians and journalists of every political stripe, would have lavished him with eulogies. His wartime efforts had created a collective amnesia about his controversial prewar career; suddenly all the debits and deficiencies were erased from the invisible ledger which the press and the public had maintained on him for the previous...
14 Postwar Conflicts and Challenges14 Postwar Conflicts and Challenges (pp. 259-278) https://doi.org/10.2307/j.ctt6wrdvd.17
The first criticism of Schwab’s wartime service arose in January 1921. A routine audit had been made of the records of the Emergency Fleet Corporation, preparatory to hearings before the House Committee on Shipping Board Operations. The audit was conducted by Colonel Eugene Abadie. On January 20, 1921, Abadie testified that the EFC files contained a voucher for Schwab’s personal expenses. The amount involved was $269,543, covering Schwab’s expenses for nine months. During his service to the EFC, Schwab had traveled nearly 100,000 miles visiting shipyards and war-bond rallies. All of these trips had been made in his own private...
15 Twilight of a Titan15 Twilight of a Titan (pp. 279-304) https://doi.org/10.2307/j.ctt6wrdvd.18
In late 1927, when Schwab succeeded Judge Gary as president of the American Iron and Steel Institute, he became the senior spokesman for the American steel industry. This post provided him with a semiannual forum in which to express his philosophy of business and his views on the state of the economy.
He foresaw many problems—but only in the context of the steel industry; he had no intimation whatever of the impending general crisis of the economy. He imagined that the stock market boom of the Harding and Coolidge years, fueled by the inflationary policies of the Federal Reserve...
Appendix A The Whipple NotesAppendix A The Whipple Notes (pp. 305-306) https://doi.org/10.2307/j.ctt6wrdvd.19
Appendix B The Genealogy of an Historical Myth: The Armor Scandal of 1894Appendix B The Genealogy of an Historical Myth: The Armor Scandal of 1894 (pp. 307-310) https://doi.org/10.2307/j.ctt6wrdvd.20
NotesNotes (pp. 311-342) https://doi.org/10.2307/j.ctt6wrdvd.21
IndexIndex (pp. 343-350) https://doi.org/10.2307/j.ctt6wrdvd.22